On the other hand, Balisacan and Pernia (2002) show that access to technology (as measured by the proportion of households with access to electricity) does not have a statistically significant effect on the welfare of the poor in the Philippines. Since human capital accumulation is determined as a linear function of the level of human capital, human capital is the engine of growth in the Lucas (1988) model. As a result, the growth of the stock of human capital stagnates, as does the growth of per capita income.
One of the most widely used measures of human capital in the empirical literature is educational attainment, or level of education. The authors note that private returns to education are always higher than social returns due to the extent of public involvement in the education sector. Unfortunately, empirical research on the role of infrastructure spending on economic growth and poverty in the Philippines—an emerging economy in Southeast Asia—is limited.
In a recent assessment of the Philippines' power situation, the Department of Energy (DOE) of the Philippine government reported that: (i) In the country's Luzon. The Philippine Infrastructure Public-Private Partnership (PPP) program is the flagship policy agenda of the government to promote infrastructure development in the country. The economic intuition behind the impact of public infrastructure on economic growth in the model is as follows.
As mentioned in the "Public Infrastructure" section, a contentious empirical issue is the estimation of the elasticity of output relative to public capital.
25 Percent Increase in the PIE-to-GDP Ratio (International Financing)
We then discuss the demand-side and supply-side effects that occur in the short and long term. Total household consumption also increases by 2.2% in the first period, which is 2 percentage points more than in the production tax scenario. Table 4 Macroeconomic results (percentage deviations from baseline). However, in the first period, real GDP falls by 0.1% as the negative demand-side effects, at least in the immediate period, outweigh the positive demand-side effects of increased investment in public infrastructure.
The positive demand-side effects of higher investment in public infrastructure are intensifying in the short and long term due to the continued accumulation of private capital and improving productivity. Specifically, the total stock of private capital grows by 0.7% and 2.1% in the short and long term respectively in the current scenario, compared to 0.1% and 1% in the production tax scenario. The disposable income of tight households will continue to rise in the short and long term, by 2.3 and 2 respectively.
Investments by limited companies increase by 2% in the short term and by 2.3% in the long term, while investments by unrestricted companies increase by 3.8% and 8.2% over these time frames, respectively. Similarly, total short-term and long-term investment in this scenario grow more (7.7% and 8.2%) than in the production tax scenario, as higher public investment is complemented by an increase in private investment. Although exports recover over time due to the productivity-enhancing effects of additional public infrastructure, long-term potential export growth is somewhat lower than that observed at baseline.
Sectoral effects: We now analyze the sectoral effects of a 25% increase in the PIE ratio financed by international loans (Table 5). Over time, the positive spillover effects of higher investment in public infrastructure strengthen the competitiveness of domestic producers in the international market, supporting their recovery in exports (see Figure 6). This contrasts with the results observed in the case of tax-financed investments in public infrastructure.
In that case, exports in the food processing and petrochemical sectors do not recover, even in the long run. Instead, imports continue to exceed exports in the long run due to the persistently higher real exchange rate (see Fig.7). As in the case where increased production taxes finance additional investment in public infrastructure, all sectors experience an increase in investment in the long run.
25 Percent Increase in PIE-to-GDP Ratio (Production Tax Financing)
Higher public investment strengthens the overall capital stock in the economy and provides a boost to private investment in both the short run (6.6%) and the long run (7.1. As profitability is higher under improved productivity, both constrained and unconstrained firms make more private investment in the long run The real exchange rate appreciation in the first year declines in the short and long run.
The net effect of these changes is a relative increase in real GDP of 0.9% in the short term and 2% in the long term. In the long run, all producers in the economy benefit from the positive supply effects of higher public investment (capital accumulation and improved productivity). This is especially true for light and heavy industry, textiles and other service sectors, which show significant growth in output over the long term.
However, output in the food processing and petrochemical sectors remains below its baseline value in the long run due to increased imports. The positive spillover effects of a higher public capital stock improve the competitiveness of local producers in the international market. As a major producer of capital goods, heavy manufacturing registers the largest expansion in investment (2.3% in the first period and 4.9% in the long term).
This price ultimately falls in the long run due to the productivity-enhancing effects of increased public spending on infrastructure. We now analyze the poverty and distributional effects of higher public investment in the Philippines. Higher factor returns in the short and long run increase the poverty-reducing effect of income and offset the poverty-increasing effect of higher consumer prices.
Table 7 also shows the changes in the number of poverty by location (urban and rural) and type of household (limited and non-limited). The results follow the same general trend in terms of changes in poverty and inequality, both in the first year and in the long run. Indeed, the change in the incidence of poverty increases as the elasticity of output to public capital increases from 0.1 to 0.2.
Figures
Recognition PEP is funded by the United Kingdom Department for International Development (DFID) (or UK Aid) and the Government of Canada through the International Development Research Center (IDRC). This particular research program received separate funding from the Australian Agency for International Development (AusAID). We thank the participants of various general PEP meetings, the 2013 GTAP Annual Conference in Beijing and the 2013 GDN Annual Conference in Manila for their helpful comments.
In particular, the authors are grateful to John Cockburn, Yazid Dissou, Jean-Yves Duclos, and Luca Tiberti for technical support and guidance, and Tomas Africa and Randy Spence for valuable comments and suggestions.
Tables
The macro and micro simulation models are presented in the chapter "The growth and distributive effects of public infrastructure investments in the Philippines". In the micro simulation, the macro effects of the two simulations are generated from the CGE model. Investments in public infrastructure in the first period only contribute to the level of the public capital stock in the next period.
The public capital share rises by 5.29 % and 24.81 % respectively in the short and long term. Wages in the short and long term rise by 1.18 % and 4.80 % respectively due to improved productivity. Both constrained and unconstrained firms increase their investments in the short and long run.
Both constrained and unconstrained households increase their consumption by 3.72% and 2.47%, respectively, in the long run. On the supply side, both constrained and unconstrained firms increase their investment in the first period. In the short and long term, sector productivity increases due to greater public investment and public capital.
1, where foreign financing of investments in public infrastructure led to a decrease of 0.01% of real GDP in the first period. The positive effects outweigh the negative effects of the production tax in the long run. In the long run, households without restrictions benefit from a higher return on investment due to increased public investment in infrastructure.
Under both financing mechanisms, distortions only occur in the first period and in the short term. Most of the negative effects of tax-financed public infrastructure investment occur in the first period. In addition, limited firms in this scenario invest more from the first period (again reflecting increased savings available for investment purposes).
The trade deficit narrows somewhat in the long run (by 2.6%) as imports grow more slowly. In table 11 we can see that poverty is 0.3% lower in the longer term (20 years in our microsimulation).
